This year has been nothing less than a whirlwind of changes, with economies in Asia gradually reopening, uncertainties from geopolitics, inflation, US Federal Reserve rate hikes and so on.

When we meet with investors, one of their key concerns is portfolio protection in today’s current market conditions.

At UBS, we recognise that volatility persists, but we believe that it is important for clients to stay invested and ensure that their investment portfolios are well diversified.

This is why we have seen increased interest among our clients in endowment-style investing.

Endowment-style investing goes beyond a shelf of new product offerings, and it entails forward planning over the mid to long term and allocating a part of your portfolio to alternative investments.

Rising interest

In our latest Global Family Office Report 2022, we have found that many Asia-Pacific (Apac) family offices are increasingly including alternatives.

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Among Apac family offices, more than a third of their investment portfolio is allocated to alternatives including private equity, private debt, hedge funds and real estate. Investors’ interest in alternatives seems set to rise in the current market conditions.

How does endowment-style investing differ from the traditional investment approach?

First, it provides a long-term investment horizon.

Endowments are typically structured in a way that the principal invested is held over a very long term, with a specified limit on the income allowed to be spent in a year.

This approach tolerates illiquidity which enhances returns, avoiding limited investment timeframes and liquidity constraints.

Secondly, endowment-style investing enables investors to take full advantage of buying opportunities. Due to their longer timeframes, they provide leverage during periods of market volatility and corrections as they expect prices and valuations to recover over market cycles.

Research has found that top-performing endowments such as those at Princeton and Yale increased allocations to growth assets during market volatility. In general, this has led to the endowments achieving higher risk-adjusted returns than traditional benchmarks over the long term.

Most importantly, endowment-style investing makes use of alternative investments to diversify portfolio assets beyond traditional asset classes such as bonds and fixed income.

A well-diversified investment portfolio has lower risk of volatility directly affected by the markets globally.

Minimising risk

Alternative investments include hedge funds, private equities, private debt, private real estate, and infrastructure. They are less correlated to traditional asset classes, and this means that prices of alternatives are less likely to move in tandem to traditional asset investments, minimising the risk of dramatic movements alongside the public markets.

The adoption of this approach significantly rose with the start of the Covid-19 pandemic, as clients began looking for differentiated sources of income and asset classes that are less correlated to public markets.

This is where a global wealth manager, such as UBS, comes in to engage clients in their planning across their investment horizons, with the depth and breadth of our alternatives solutions on a global scale.

Gaining access through a trusted partner is key to success in private markets. UBS has demonstrated its capabilities over a long track record. As a trusted adviser, UBS facilitates exclusive opportunities and ensure access to fund managers with limited capacity.

For example, the Multi Vintage Private Equity Fund is UBS’ flagship private equity solution, which offers globally diversified exposure through carefully selected mid-market funds known to be difficult to access.

It also includes co-investments and secondary market private equity transactions.

For clients who want to invest in private markets and illiquid alternative investments that are integrated into a traditional portfolio, UBS offers full discretionary management.

We help our clients build their portfolios based on their investment objectives, risk/return preferences and resources. Clients get access to world-class funds based on UBS' long-term relationships with top-tier managers.

The unpredictable outlook makes it hard to see what is coming, but we believe investors can build portfolios that can outperform despite the uncertainty. So, let’s stay optimistic, resilient and diversified.

The writer is UBS Global Wealth Management APAC’s co-head for advisory & sales and client services.